Stern Review

[17] Brendan Barber, General Secretary of the Trades Union Congress, was optimistic about the opportunities for industry to meet demands created by investment in technology to combat climate change.

Chairman of Shell UK, James Smith, expressed the hope of the group that business and Government would discuss how Britain could obtain "first mover advantage" in what he described as "massive new global market".

[19] On 1 November 2006, Australian Prime Minister John Howard responded by announcing that A$60 million would be allotted to projects to help cut greenhouse gas emissions[20] while reiterating that Australia would not ratify the Kyoto Protocol.

British Prime Minister, Tony Blair, stated that the Review demonstrated that scientific evidence of global warming was "overwhelming" and its consequences "disastrous" if the world failed to act.

In an article in the Daily Telegraph (2006), Ruth Lea, Director of the Centre for Policy Studies, questions the scientific consensus on climate change on which the Stern Review is based.

Lea goes on to describe the problem of drawing conclusions from combining scientific and economic models as "monumentally complex", and doubts whether the international co-operation on climate change, as argued for in the Review, is really possible.

[23] Yohe and Tol (2007) described Lea's article as a climate sceptics "scattershot approach" aiming to confuse the public by questioning the causal role of CO2, by emphasising the complexity of making economic predictions and by attributing a motive for Stern's conclusions.

[24] Miles Templeman, Director-General of the Institute of Directors, said: "Without countries like the US, China or India, making decisive commitments, UK competitiveness will undoubtedly suffer if we act alone.

[...] So hurrying the process of switching from carbon-based fuels along by boosting energy costs means that humanity will have to delay buying other good things such as clean water, better sanitation, more and better food, and more education.

[32] In his paper on the Jevons' Paradox, which states that improvements in energy-efficiency of technologies can potentially increase greenhouse gas emission, Steve Sorrel concludes with "A prerequisite for all the above is a recognition that rebound effects matter and need to be taken seriously.

They posit that the basis for such high targets is "economics, pure and simple" (p. 155), that is, stronger emissions cuts were seen by the Stern Review authors as "prohibitive, destabilizing capitalism itself" (p. 155).

"All of this signals that any reduction in CO2 equivalent emissions beyond around 1 per cent per year would make it virtually impossible to maintain strong economic growth—the bottom line of the capitalism economy.

The Stern report, citing Muir-Wood, said: "New analysis based on insurance industry data has shown that weather-related catastrophe losses have increased by 2% each year since the 1970s over and above changes in wealth, inflation and population growth/movement.

[37] There are four main reasons commonly proposed by economists for placing a lower value on consumption occurring in the future rather than in the present:[10] Using a high discount rate decreases the assessed benefit of actions designed to reduce greenhouse gas emissions.

[9] Richard Tol argues that in estimating discounting rates and the consequent social cost of carbon, the assumptions that must be made about the remote future are so uncertain that they are essentially arbitrary.

[48] In subsequent debate, Stern has conceded the case for a higher elasticity, but noted that this would call for much more extensive redistribution of income within the current generation (Dietz et al. 2007. pp. 135–137).

Placing climate change before investments in other important nonmarket services such as conservation, health, education, security, and transportation also cannot be justified in the name of future generations.

The higher rates preferred by Stern's critics are closer to the weighted average cost of capital for private investment; see the extensive review by Frederick et al. (2002)[50] According to Quiggin, the difference between the two is determined by the equity premium.

[10] Quiggin says that there is no generally accepted theory accounting for the observed magnitude of the equity premium and hence no easy way of determining which approach, if either, should be regarded as the appropriate market comparator.

HM Treasury have issued a document where several economists are quoted praising the Stern Review, including[22] Robert Solow, James Mirrlees, Amartya Sen, Joseph Stiglitz, and Jeffrey Sachs.

"[53] In a paper published in 2008, Tol showed that the Stern Review's estimate of the social cost of carbon (SCC) along a "business-as-usual" emissions pathway was an outlier in the economics literature.

[57] However, Weitzman also commented that: [...] in my opinion, Stern deserves a measure of discredit for giving readers an authoritative-looking impression that seemingly objective best-available-practice professional economic analysis robustly supports its conclusions, instead of more openly disclosing the full extent to which the Review's radical policy recommendations depend upon controversial extreme assumptions and unconventional discount rates that most mainstream economists would consider much too lowAccording to a paper Weitzman (2007), the Stern Review is "right for the wrong reasons".

[59] Dasgupta (2006, p. 1) described the Review as "a long and impressive document", but felt that the authors had treated the issue of intergenerational equity (via the social discount rate) "cavalierly".

[60] Writing in The New York Times newspaper, Varian commented "Sir Partha's stripped-down model leaves out uncertainty, technological change and population growth, but even so, such a high savings rate is totally implausible."

This is one reason for the intemperate response from some traditional economists to the Stern ReviewEric Neumayer (2007) of the London School of Economics thought that the Review could have argued for emission reductions based on the non-substitutable loss of natural capital.

[citation needed] Professor Emeritus of Economics at Pepperdine University George Reisman has said that "Any serious consideration of the proposals made in the Stern Review for radically reducing carbon technology and the accompanying calls for immediacy in enacting them makes clear in a further way how utterly impractical the environmentalist program for controlling global warming actually is.

The main criticisms cited above concern the details of calculations and modelling choices within an orthodox economic framing of the world and mostly try to argue against substantive greenhouse gas mitigation.

Ecological economists accept the need for serious action but reject the reasoning of economic commensuration of costs and benefits, the probabilistic approach to uncertainty and the application of a utilitarian intergenerational calculus.

[81] Spash notes that a range of serious problems challenging economic analysis is raised or mentioned in the report including: strong uncertainty, incommensurability, plural values, non-utilitarian ethics, rights, distributional inequity, poverty, and treatment of future generations.

[86] In an official letter (2008), Joan Ruddock MP of the UK Government, dismisses the criticisms of the Review made by several economists, which, in her view, show "a fundamental misunderstanding of the role of formal, highly aggregated economic modelling in evaluating a policy issue".